Sequester blamed as AMP, FirstEnergy nix power plant

Wednesday

May 8, 2013 at 12:01 AMMay 9, 2013 at 6:24 AM

American Municipal Power and FirstEnergy are scrapping plans to build jointly a gas-fired power plant in northeastern Ohio because of increased financing costs. The project in Eastlake, announced in November, was going to generate power during periods of peak demand, meaning it would operate only on the hottest days of the year.

Dan Gearino, The Columbus Dispatch

American Municipal Power and FirstEnergy are scrapping plans to build jointly a gas-fired power plant in northeastern Ohio because of increased financing costs.

The project in Eastlake, announced in November, was going to generate power during periods of peak demand, meaning it would operate only on the hottest days of the year.

AMP, which is based in Columbus, is blaming federal budget cuts, which are reducing some of the financing advantages available to the city-owned utilities that AMP serves.

"This project had a lot of positives and some challenges, but the financial uncertainty today, on top of continued regulatory uncertainty, heavily impacted AMP's decision," said Marc Gerken, AMP's president and CEO, in a statement.

Under the November agreement, AMP was going to use its access to inexpensive financing to pay for the 873-megawatt plant and then receive 75 percent of the electricity output. FirstEnergy, based in Akron, was going to do the construction and then later buy a 25 percent share of the plant.

"With them not able to get the financing to get it off the ground, it's just not moving forward," said Mark Durbin, a FirstEnergy spokesman. "It was a good project, but it's not going to work this time."

The financing issues arise from the sequester, a series of federal budget cuts that took effect in March. Among the cuts was the amount of the subsidy for Build America Bonds and other bonds that cities can use to help finance power-plant construction.

In addition to the direct hit to subsidies, there is the potential for indirect effects, as budget cuts are passed down to the states, said Rachel Barkley, municipal credit analyst at Morningstar

"When states get affected, we get some trickle-down to the local level," she said.

AMP said in its news release that some of its already-funded projects have seen increases in costs because of the budget cuts. It did not list any specific projects.